As the leaves turn amber and the crisp air ushers in the fall (or a few blizzards and 20-degree temps if you live in Fargo, ND), the freight industry hits its annual high note – the Peak Season.
Yet, this year's melody sounds a bit off-key for LTL carriers… the usual hustle and robust profits expected during these months have hit a dissonant chord.
And it's not just the seasonal rhythm that's out of tune; the entire LTL sector seems to be marching towards a cold dark winter for carriers.
Q3 Earnings: A Paradox
The recent Q3 results paint a paradoxical picture for the LTL industry.
On the surface, there's a glimmer of hope — most carriers showed a nice uptick quarter over quarter, a direct ripple effect from Yellow Corp's bankruptcy, as they absorbed its forsaken business.
However, this surface-level surge was not the ‘boom’ that most predicted for LTL carriers. Despite the temporary uplift from Yellow's exit, the overall year-over-year figures for many carriers still reflect a decline.
This isn't merely a hiccup but a sign of a broader weakening demand cycle. The industry, typically robust during the Peak Season, is now facing an unexpected ebb.
This contrast between the short-term gains and the longer-term downward trend suggests that the anticipated ‘Peak Season’ is going to be Weak at best.
Timing is Everything
As we use our crystal ball to forecast for Q1, the forecast for LTL 'Winter' — the industry's off-season from January through March — is bleak.
Even with Yellow's closure, all signs are pointing towards low tonnage, low shipment count, and low revenue.
Most carriers have already ‘cut costs’ over the past 3 quarters so when the volumes reach a certain level, carriers will need to get scrappy and aggressive. There will likely be a scramble for revenue in what's anticipated to be a fiercely competitive bid season.
A Spring of Discontent
Come spring, the consumer (burdened by the Fed trying to drive down inflation with high interest rates) will likely have tightened the purse strings.
Weak consumer demand will reflect in disastrous Q1 earnings for carriers, shifting their strategy from strategic growth through net new revenue and preserving revenue quality to aggressively 'taking' business — a move that will spark a pricing war.
The Pendulum Swings to Shippers
All signs point to a shift in the LTL pricing landscape. The carriers' current strategy of ‘Pricing Discipline’ is fleeting.
The good news? Shippers will finally gain the upper hand again (for the first time since late 2020).
By mid-2024, we could see rates chilling to as low as $350 on the Fred.org chart of Long Haul LTL pricing— a cool down that will leave carriers in the cold but offers shippers a warm reprieve.
(Finally.)
Shown above: Fred Chart
As you can see in the chart, pricing had peaked last November at $408 and as volumes and demand weakened, the average price fell month over month to a low of $384 in April.
That trend would have likely continued but something strange happened in July 2023 on the graph…
Hmm, I wonder what it could be一Oh! I got it:
A multibillion-dollar LTL carrier went belly up overnight and there was a free-for-all for 50,000 LTL shipments per day.. The LTL carriers got a windfall for sure.
Premium priced freight with $0 customer acquisition costs. Thanks, Yellow.
Since Yellow was an anomaly, it is easy for me to predict that the trend line will revert to the bar set in April at the minimum. However, I think the correction will be much sharper.
$350 is the bar that I see by June of 2024.
So bundle up, carriers. A pricing winter is coming, and shippers are ready to ride the sled of lower rates all the way down the hill. (Was this too much wordplay? Probably.)
An Election Year Fuel Forecast
Adding fuel to the fire — or rather, less of it — fuel prices, a significant cost component in LTL rates, are projected to stabilize or even dip as we head into the 2024 election cycle.
Biden will do everything he can to keep gas prices low as we all know the election will come down to one core issue:
Time to Wrap it Up:
Okay, you made it to the end of the article and I laid out a lot of information. However, I wanted to lay it out in a snippet so that you can take action on this info if you see fit!
This is my 3-step guide to you explaining exactly ‘how’ the LTL market will move and ‘why’ the pricing will finally return to a pre-pandemic level (or at least come close).
My prediction for how pricing will come down to that $350 mark (please see the Fred Chart) is as follows:
- January Bid season will be BUSY as all large (and small) LTL shippers will be looking to secure better pricing. The Carriers will have come off of a tough Q4 and will be in the middle of the slow season. They will get aggressive and look to win Net New Revenue.
- March/April will roll around and the carriers will need to add MORE Net New Revenue because they were not aggressive enough in January. They will turn to the large 3PLs and blanket programs and start to discount those rates significantly. This will turn on a bunch of ‘transactional’ freight but it will be what they need: Revenue!
- By mid-Q2, it will be apparent that adding Net New Revenue is not cutting it; and finally, the shippers will start to have real leverage. LTL carriers will start to compete for more business from incumbent carriers.
We'll see local reps sharpening the pencil on their current contracts before renewal because other carrier reps are offering a better deal. This competition will finally drive pricing back down and the phrase ‘pricing discipline’ will not be mentioned in board meetings for the rest of 2024.
Two things on your way out:
- I have had a blast writing these newsletter articles along with the LTL collective. To be clear, this article was authored by me, Gabe Pankonin. It feels weird to have to clarify, but this LTL industry is notoriously small - and let’s just say there are some politics involved when discussing the LTL carriers' performance and pricing practices. My goal is to encourage more LTL leaders to add thoughts to this public forum under the ‘LTL Collective’ pen name, but whenever there is an opinion piece like this, the author's name will be attached.
- If you think this was valuable, please subscribe and share (and send it to a shipper client too)! We don’t do sponsorships or ads, and we never will. Our only goal is to grow the community. This Newsletter is being made solely to fill the void in the industry and encourage discussion about LTL!